by Tom Walsh, Detroit Free Press

by Tom Walsh, Detroit Free Press

DETROIT -- An obscure little Michigan hospital that closed its doors 21 years ago may now offer some intriguing clues about how today's huge Chapter 9 bankruptcy of Detroit could unfold.

One of the nation's rare Chapter 9 bankruptcy cases was filed in 1992 by the Addison Community Hospital Authority in Lenawee County, Mich.; it was handled by U.S. Bankruptcy Judge Steven Rhodes, who now presides over Detroit's case.

Very much in line with rulings in a 1994 opinion from the Addison case, Rhodes is already insisting on a speedy timetable for hearing arguments and deciding critical issues.

Former U.S. Bankruptcy Judge Roy Reynolds Graves said in an email that the 1994 opinion "tells us two things about how Judge Rhodes may handle the Chapter 9 of Detroit."

"First," Graves said, Rhodes "will not micromanage this case. Judge Rhodes sees his role in Chapter 9 as 'hands off,' carefully limiting his involvement to setting a timetable and then deciding the issues that are presented to the court. He will not try to steer this case in any direction. Second, he will limit court participation to those who have an actual legal stake in the outcome."

"Community groups and activists looking to intervene in Detroit's Chapter 9 now know that Judge Rhodes will not allow this case to become weighted down with political theater," added Graves, 67, a bankruptcy judge from 1982 to 2002. He handled such high-profile Chapter 11 corporate cases as DeLorean Motors and McLouth Steel.

Indeed, Rhodes repeatedly cited the importance of quick action in his 1994 decision, limiting the number of parties allowed to intervene in the Addison case.

"By allowing a large number of non-creditors to be heard," he wrote, "the court would be granting a blanket invitation to all parties in the area," which would "hamper and unduly delay the debt adjustment process." The Addison hospital authority covered four townships whose millages supported the hospital, about 20 miles south of Jackson, and remained active in finding and assisting pensioners until the financial books were closed in 2011.

Rhodes said in his 1994 ruling that courts have "the discretion to balance the needs of a potential intervener against any delay or prejudice which would result," adding that "Congress intended municipalities to have more streamlined control in the debt adjustment period without interference from outside parties."

To Graves' point that Rhodes will likely limit his own involvement - he's unlikely to dictate to Detroit which city services should get priority or what happens to Belle Isle, for example. Rhodes had some strong language about this in the Addison case.

"The powers of the court are subject to a strict limitation," he wrote, adding that the law "makes clear that the court may not interfere with the choices a municipality makes as to what services and benefits it will provide."

Rhodes' rulings in the Addison case, however, provide few clues about how the judge may lean on two critical issues:

â?¢ Whether Detroit is eligible to file for Chapter 9, which depends in part on whether Detroit emergency manager Kevyn Orr has negotiated in good faith with labor unions and other creditors.

â?¢ Whether federal bankruptcy law would supersede the Michigan Constitution's language protecting the pensions of public employees.

As to whether federal law trumps state law and how Rhodes might rule on pensions, his language in the Addison case is inconclusive. He wrote that in Chapter 9, "the law must be sensitive to the issue of the sovereignty of the states."

But Rhodes also wrote that states have "the power to create and govern municipalities," which could be interpreted as giving Michigan Gov. Rick Snyder and Orr considerable sway in taking whatever steps they deem necessary to get Detroit's fiscal house in order.

Asked how Rhodes might deal with that issue, Graves wouldn't hazard a guess.

"I suspect that no matter how Judge Rhodes decides this, there will be appellate review" up to the U.S. Court of Appeals and maybe the U.S. Supreme Court, he said.